Tim Harford The Undercover Economist

Articles published in September, 2005

Publishing News on ‘The Undercover Economist’

No ordinary run-of-the-mill book on business and economics, this is the work of a very talented communicator, able to put across the economics of everyday life, making it stimulating reading and even, dare I say it, fun.

The Undercover Economist will be published in November – pre-order here.

27th of September, 2005MarginaliaComments off

David Bodanis on ‘The Undercover Economist’

Harford writes like a dream – and is also one of the leading economic thinkers of his generation. From his book I found out why there’s a Starbucks on every corner, what Bob Geldof needs to learn to make development aid work properly, and how not to get duped in an auction. Reading The Undercover Economist is like spending an ordinary day wearing X-ray goggles.

-David Bodanis, Author of E=mc2 and Electric Universe

26th of September, 2005MarginaliaComments off

Mergers and gay priests

Dear Economist,
Christians are called to support one another and to settle their differences. Further, churches cannot survive without money. What advice would you give to the Anglican Communion, as it attempts to address the issue of homosexual priests?
Anne Chaffey, by e-mail

Dear Ms Chaffey,

I am not sure why a church would worry about money. If God can raise the dead, I’m sure He can manage a non-inflationary monetary expansion. Yet leaving money to one side, the Anglican Communion retains great spiritual value. The question the churches need to ask is whether that value is greater if they stick together, or arrange a separation.

Such a separation needs to be amicable, and would surely be so only if the churches could agree to share out indivisible assets fairly, including church buildings, valuable brand names, and archbishops. Fortunately, Peter Cramton, Robert Gibbons and Paul Klemperer solved the problem of fairly and efficiently reallocating jointly owned assets in their Econometrica paper “Dissolving a partnership efficiently”. They use a kind of auction to determine who gets the asset and how much compensation is paid to the others.

The only concern is that some factions may prefer a schism even if spiritual value is maximised by a unified communion. This is what economists call “strategic refusal to interconnect”. As a parallel, consider two different standards for computer software. Social value is maximised if the software programs can talk to each other, but the owner of the more common one may figure that by refusing to recognise the alternative, he can wipe it out.

In corporate cases, the competition policy authorities typically get involved. In this case the Anglican Communion may decide to seek its own higher authority… whoever He may be.

Also published at ft.com.

Surviving the lottery

Dear Economist,

I recently won more than €100m on the lottery. I am terrified that the money will come between me and my friends, or that I shall make a mess of spending it. What should I do?

Anonymous of Limerick, Ireland

Dear Anonymous,

Don’t worry about your friends. Even if things don’t work out, with €100m in the bank you will not have any trouble making new ones. Still, you are right to be concerned about managing your win correctly.

If you were a rational economic agent, you would instantly optimise your purchasing patterns to deal with your greatly expanded budget constraint. Evidently you are not, or you would certainly not have wasted money on a lottery ticket, which gave you a tiny chance of winning a prize that you now say you do not want.

Economic psychologists have long realised that people do violate the axioms of economic theory. The economist John List has demonstrated, however, that these mistakes typically happen in unfamiliar settings. With experience, people do act rationally.

Therefore you must acquire this experience. I recommend putting your money in trust with binding rules on when you can withdraw it. The first year, allow yourself €50,000; this should relieve immediate money worries and provide yourself, and these precious friends of yours, with a few treats. After this practice, allow yourself €100,000 in the second year and €200,000 in the third. After 11 years you will have withdrawn all the money, and you should have had plenty of time to think about how best to spend it. You will have acquired newer, richer friends and you may even have kept some of your old ones. But before you become too expert with your money, kindly note that my commission on this advice is a modest 1 per cent.

Continued on ft.com.

Update: Subscription-free in the New York Times again, so I’ve added the full text here.

Sharing the chocolates

Dear Economist,
My wife is a lady of leisure. From time to time, I like to bring home a box of chocolates for us to share. I’ll have one or two that night, but you can be sure that by the time I get home the next evening, the entire box will have been scoffed. What to do?
Yours sincerely,
Tom Fletcher, Surrey

Dear Tom,

Your difficulty is that the property rights here are not secure, and while you believe that the chocolates should be split roughly half-and-half, your wife clearly does not see it that way.

In a less intimate relationship, the answer would be easy: decant the chocolates into separate his-and-hers Tupperware containers. Anyone who has seen a student fridge will know the phenomenon, which works well as long as there are no outright thieves in the house. However, the metaphorical sharp elbows involved may take the gloss off the romantic gift you wish to share with your wife.

An alternative: subtly discourage your wife from gluttony. Use a fridge magnet to display a photograph of a suitably Rubenesque model. The comediennes Bella Emberg or Roseanne Barr may be suitable. This may subconsciously dissuade her from eating too many chocolates. If challenged, declare your affection for the classics of comedy. But even with a cover story as convincing as this, your wife may still look at you strangely.

So I suggest that you will simply have to work around the lack of property rights. Entrepreneurs in poor countries often do this by trading in small quantities. The transaction costs are higher, of course, but not prohibitively so in your case. Your motto should be “a little, and often”. I recommend that next time, instead of buying the doomed box of chocolates, you simply buy a romantic pair of soft centres.

Also published at ft.com.

The passionate consultant

Dear Economist,
I am majoring in strategic and production management at a German university and seem headed for a career in management consultancy. But cinema is my passion. Should I follow my heart and do films, even if it seems risky?
— Florian Neumann, Germany

Dear Florian,
The answer depends on you – or more precisely on how you compare with rivals for these jobs. Choosing the best career is a little like trying to choose the shortest queue at the post office. (Perhaps you do not have queues at German post offices – try to imagine.) All the queues will tend to be equally long; if any of them were obviously quicker, people would already have joined them.

The only reason for you to choose one queue over another would be if you had a crush on the handsome post office clerk at window number two, and nobody else did. If everyone else did, each of you would find it a toss-up as to whether to spend twice as long queuing for a chance to brush hands over the stamps, or to get quick service from somebody less fanciable.

Now, back to your career choice. All jobs, like all post office queues, are similarly attractive once you take into account working conditions, entry qualifications and pay. What you must consider is not whether you like creative work, but whether you like it more than all the other aspiring film-makers who are keeping wages low and opportunities scarce.

Your choice to study management now makes consulting easier, and therefore relatively more attractive, compared with other potential careers. It’s as though you chose a queue some time ago and are now near the front. Since you are considering joining the back of another queue, however, perhaps you are just obtuse enough to make film-making the ideal choice.

Also published at ft.com

3rd of September, 2005Dear EconomistComments off

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